Otago Standards Committee v Greg Roderick Stewart

JurisdictionNew Zealand
JudgeD F Clarkson,Ms F Freeman,Mr C Lucas,Mr G McKenzie,Mr W Smith
Judgment Date15 September 2016
Neutral Citation[2016] NZLCDT 28
Docket Number[2016] NZLCDT 28 LCDT 014/16
CourtLawyers and Conveyancers’ Disciplinary Tribunal
Date15 September 2016

UNDER the Lawyers and Conveyancers Act 2006

BETWEEN
Otago Standards Committee
Applicant
and
Greg Roderick Stewart
Practitioner

[2016] NZLCDT 28

Court:
CHAIR

Judge D F Clarkson

MEMBERS OF TRIBUNAL

Ms F Freeman

Mr C Lucas

Mr G McKenzie

Mr W Smith

[2016] NZLCDT 28 LCDT 014/16

NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

Penalty decision in respect of a breach of r 5.5.1 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules2008 (CCCR) (services other than regulated services … must be associated with the provision of regulated services …) — the business in question was banking services — such conduct had not been considered by the Tribunal before — the practitioner became involved with a company which provided advice and financial services to overseas clients — the company'websitepromoted the practitioner as providing banking services through his solicitor'trust account — the engagement letter referred to fee structures which related to the provision of banking services rather than legal services — the practitioner pleaded guilty and both counsel agreed on a 12 month suspension — whether the practitioner had breached r 5.5 by providing stand-alone banking services — if so, whether a 12 month suspensions was sufficient from a deterrence perspective.

Counsel:

Mr J Shaw for the Standards Committee

Ms B Webster for the Practitioner

PENALTY DECISION OF THE TRIBUNAL

Introduction
1

This penalty decision is the first in which the Tribunal has considered a breach of Rule 5.5.1 — that is the rule that prevents a lawyer operating a business which provides other services to a client, unconnected with regulated services. In this case the situation is particularly serious because the business in question was banking services.

2

To his credit, Mr Stewart was fully cooperative from the inspection stage and throughout the disciplinary process. He has pleaded guilty to the two (amended) charges and taken responsibility for his actions. He has voluntarily stepped aside from practice.

3

Because of the implications of the “banking services” charge, the Tribunal was cautious in approaching the agreed penalty schedule which had been negotiated by the parties. We requested that we receive full submissions on penalty.

Factors in determining Penalty
4

As submitted by Ms Webster, in order to determine penalty the following factors are considered:

  • 1. The seriousness of the conduct.

  • 2. Aggravating features.

  • 3. Mitigating features.

  • 4. Relevant penalty decisions.

  • 5. The need for specific or general deterrence.

  • 6. The need for protection of the public.

  • In addition we consider there must be a further assessment:

  • 7. The overall fitness of the practitioner.

5

Taking all of those features into account, we determine what will be a proportionate response to this conduct, which will maintain the public'confidence in the legal profession, according to objects of the Act.

Charge 1 — The Nature of the Conduct
6

The charges, as amended are set out in Appendix 1 to this decision. The practitioner has admitted Charge 1, which involved the management of his trust account. The practitioner conceded that he had been negligent to the level set out in s 241(c) of the Act 1 which states:

“… has been guilty of negligence or incompetence in his or her professional capacity, and that the negligence or incompetence has been of such a degree or so frequent as to reflect on his or her fitness to practise or as to bring his or her profession into disrepute …”

7

The background to the charges is as follows: Mr Stewart, who has been a lawyer for some 32 years, has practiced on his own account, with a trust account since February 2009. During a routine inspection on behalf of the Law Society in January and February 2014, a number of irregularities were noted in Mr Stewart'trust account record keeping. As set out in Mr Shaw'submissions, these fell into four categories:

  • • Failure to keep adequate records.

  • • Client balances overdrawn.

  • • Failure to reconcile trust bank accounts with trust ledger.

  • • Incorrectly certifying compliance with the Act and Regulations.

8

Mr Stewart'trust account problems began when he transitioned from a manual ledger system to a computer based system. He received little training in the computer package and because he resided in a small provincial town he seemed unable to obtain ready assistance with his difficulties.

9

The irregularities extended over a three-year period, and each time Mr Stewart was required to certify to the New Zealand Law Society (“NZLS”) that his trust account was properly reconciled, he did so, telling himself that the residual errors which he was carrying forward each month “did not negatively impact on his clients, and that his manual system for correction complied with Law Society requirements”.

10

By his guilty plea he acknowledges that this was not the case. After this was pointed out by the inspector, Mr Stewart took steps to obtain further training and to put right all of the errors that had been found by the inspector. He was completely open with the inspector and on the inspector'third visit to check compliance, there were no remaining concerns.

11

In his submissions Mr Shaw draws our attention to the following features, which he says underscore the seriousness of this conduct:

  • “(a) The extended period of non-compliance and inadequate record keeping (three years).

  • (b) The fact that client balances were repeatedly overdrawn with insufficient funds in the firm'float to cover the debit balance.

  • (c) The failure to reconcile the various ledgers over an extended period (up to three years).

  • (d) The filing of 30 monthly certificates which incorrectly certified compliance in spite of clear and obvious breaches.”

12

Mr Stewart has acknowledged the seriousness of his offending by his guilty plea to the s 241(c) charge invoking as it does questions about his fitness to practice and the effect of his actions upon the profession'reputation.

Charge 2 — Provision of Banking Services
13

Mr Stewart also pleaded guilty to misconduct under Charge 2 on the basis that there had been:

“… a wilful or reckless contravention of any provision of this Act or any regulations or practice rules made under this Act that apply to the lawyer … or of any other Act relating to the provision of regulated services …” 2

14

This charge is of even more concern than Charge 1. That is because it reflects seriously on the practitioner'lack of judgment, a fact which is recognised by Mr Stewart himself and precipitated his current retirement from practice.

15

The background to the charge is important. Mr Stewart became acquainted, professionally, and later as a friend, with a former lawyer Mr Evgeny Orlov. Mr Stewart had been impressed with how Mr Orlov had conducted a matter, as counsel, on behalf of one of Mr Stewart'clients. Mr Orlov told Mr Stewart of his wife'company Equity Trust International Limited (“ETIL”). This company was said to be assisting a number of overseas people with funds, wishing to migrate to New Zealand and at some stage requiring legal services. Mr Stewart told us that it was his understanding that Mrs Soboleva, Mr Orlov'wife, had very little experience in international trust matters and no qualifications in relation to New Zealand law and thus, he was persuaded he could be of assistance, as a director in the company. It is likely that this occurred in mid-2013. 3

16

ETIL provided, according to its website material, which has been made available to us as part of the evidence, financial and other advice to overseas clients and referred such clients to associated advisors, of which Mr Stewart was one. ETIL'website promoted Mr Stewart'firm as a provider of banking services through his solicitor'trust account. In particular under a page titled “Escrow Account” it promotes the benefits of funds being held in a solicitor'trust account. It contrasts the trust account with an ordinary bank account in statements such as:

“With today'increasingly bleak banking crisis in Europe as demonstrated by the situation in Cyprus and the freezing of the accounts of many European banks on the pretence of investigating source of funds, many people have realised, that European bank accounts and indeed many offshore bank accounts, may not be safe.”

And

“Since European banks are not Government guaranteed, the chance of bank accounts being frozen in upcoming European crises is quite significant, further with new anti money laundering laws designed to allow banks to freeze funds until further investigation, many high wealth depositors have found their money frozen in Europe with the onus on them to prove where funds came from.”

17

In referring to a solicitor'trust account the website says:

“The solicitor'firm holds an account in an “AAA” rated New Zealand Bank (in our case BNZ Group). Under this Trust Account the money is deemed in law not to be an investment in the bank but money belonging to the law firm'clients and therefore in the event of bank insolvency this account is not merged with other depositors.”

Later the “advantages of an Escrow account” are set out as follows:

  • • “Account can be open in 48 hours.

  • • Due Diligence is done by the lawyer and us not the bank and money is accepted by our preferred lawyer on our certification that it has been cleared under our AML policy.

  • • Account can be completely confidential.

  • • No limit to quantum of funds sent.

  • • Cannot be frozen or arrested by the bank because it is a part of a lawyer'trust ledger and therefore regulated by the law society not banks policies.”

18

Later the website stated:

“1. In order to open an account in an “AAA” bank you will have to go through the bank'rigorous checking policies which may take weeks. Even then, if you do not appear in person or satisfy the bank why as a foreigner you wish to hold such an...

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